By and Large, Forced-Unionism States Tax More Because They Spend More


In an April 20 post, I referenced data from the Washington, D.C.-based Tax Foundation and from the U.S. Commerce Department to show that, in 2011, state and local taxes combined consumed 10.7% of personal income in the 28 states that at that time lacked Right to Work laws, but just 8.6% of personal income in the 22 states that had Right to Work laws on the books in 2011.  (This is the most recent year for which the Tax Foundation has calculated average state-and-local tax burdens for each of the 50 states.)

I further noted that the correlation between compulsory unionism and heavier state-and-local tax burdens is robust.  In fact, the 11 states with the heaviest tax burdens in 2011 were (and remain today) all forced-unionism.

Are tax burdens in forced-unionism states heavier because Right to Work laws impede Big Labor’s ability to lobby for higher taxes, or is there some other possible explanation for the disparity?

One possible alternative explanation is related to the fact that in recent decades a large and growing share of state and local government revenues have come not directly from state and local taxpayers, but from federal taxpayers.   For this reason, according to the Tax Foundation, state-and-local government revenue per capita was nearly 50% more than state-and-local tax collections per capita.  Moreover, the federal government does not simply return to each state government and its localities the amount of money taken from the state’s taxpayers.  Some states get more than their share, and some get less.

As the Institute has pointed out repeatedly, although real spendable after-tax income per capita is on average somewhat higher in Right to Work states than in forced-unionism states, the average cost of living is roughly 20% higher in forced-unionism states.  Consequently, nominal incomes (that is, incomes that don’t account for interstate differences in cost of living) are somewhat higher in forced-unionism states.

Since the federal government’s redistribution of tax revenues typically diverts revenue out of states with higher nominal incomes to subsidize states with lower nominal incomes, forced-unionism states overall are net losers.  But this loss accounts for only about a third of the disparity in state-and-local tax burdens between Right to Work and forced-unionism states.

In Fiscal 2011, state-and-local government revenue per capita was 15.4% in forced-unionism states, vs. 14.1% in Right to Work states.  (See Table 7 of the Tax Foundation factbook linked below for more information.)  That’s a gap of 1.3 percentage points, vs. the 2.1 percentage point gap for state and local tax revenues.  By and large, then, Right to Work states tax their residents less because they require less revenue, and not because they get a higher share of their revenue from the federal government than do forced-unionism states.

For decades, the federal government has been subsidizing a higher and higher share of spending by states and localities. This trend is problematic, but it can’t account for the substantial disparity in average tax burdens in Right to Work states and forced-unionism states. Image:

Facts & Figures 2014 – Tax Foundation